Assaulting our competitive edge

Pride comes before the fall according the Book of Proverbs. One Hong Kong achievement worth being proud of was our world beating Octopus card. Whilst cities around the world from London and New York to Melbourne were struggling with public transport ticketing, we had a leading contactless stored value card that worked across different modes of transport. Not only did it work for transport, it rapidly became the payment method of choice for small shopping items at convenience stores.

All of this was in place more than a decade before similar systems gradually emerged in other countries around the world. The product has not stood still. Gradually the chip has been installed in more devices, the contactless card has been improved so a handbag is no barrier to walking swiftly through a turnstile, and cards are linked up to bank accounts. Cards can be used for access control, a loyalty rewards scheme, and other functions.However, there are a few things that Octopus doesn’t seem to have achieved. Peer-to-peer payments are only just being introduced via a mobile phone app and, frustratingly, rumors aside, contactless payment in taxis has yet to turn into reality. New initiatives that seem promising, such as integration with mobile phones or the new person-to-person app, are marred by exclusive deals with selected partners, thus denying large parts of the population access to the services.

For anyone who travels around the world, our Octopus has clearly lost its luster. In Australia for instance, the MasterCard PayPass and Visa PayWave cards and point of sale devices have become so pervasive that contactless payment can be used for almost all transactions, and with the addition of a PIN number, even large transactions can be completed with the same platform. This is now used for car parking and a range of payments without attendant at the point of sale.

Today, Chinese alternative payment methods like Alipay, WetChat Wallet are so pervasive and well integrated with existing banking arrangements that our Octopus appears, in comparison, to be shabby and dated. These advancing payment technologies also show up another area where hubris risks a fall in Hong Kong. As contactless payments have become more universal, it shows up the vulnerability of the minimum wage ordinance.

Australia has possibly the highest minimum wages in the world. With loadings for casual employees this comes to around HK$130 per hour, compared to the HK$32.5 rate here. Overtime payments add to this high number. Lest anyone think this makes for a paradise, unemployment rates in Australia are around 5.8%, and tax rates are materially higher. The cost of living reflects higher wages, and in big cities. low-cost housing options are limited.

With such high minimum wages and extremely complex labor laws, Australian businesses have little alternative but to automate sales processes. A typical McDonald’s store and all supermarkets have self-service ordering, sales, and checkouts. Even the notoriously unfriendly immigration counters are now as automated as ours. At every opportunity employers seek to replace people with machines. What makes the unemployment situation worse is that labor laws are so onerous, costly, and time consuming that employers close their businesses to avoid the burden.

Meanwhile our government must take a critical look at the way we are treating the entrepreneurs and employers who are creating jobs for our people. The more rapidly we increase minimum wages, impose standard working hours, and complicate the MPF system, making it more costly to give people jobs, the more appealing technology will become, and the faster people will be replaced. It is hubris to think that our traditional low unemployment – the result of a flexible labor market – can continue to absorb government and union driven assaults without any adverse impact on employment.

Both our leading businesses and government must not take our economy’s competitive edge for granted: it has to be carefully nurtured.